Heirs' Property Relending Program (HPRP), Improving Farm Loan Program Delivery, and Streamlining Oversight Activities, 43381-43397 [2021-16459]

Agencies

• DEPARTMENT OF AGRICULTURE
• Farm Service Agency

[Federal Register Volume 86, Number 150 (Monday, August 9, 2021)]
[Rules and Regulations]
[Pages 43381-43397]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-16459]



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Rules and Regulations
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains regulatory documents 
having general applicability and legal effect, most of which are keyed 
to and codified in the Code of Federal Regulations, which is published 
under 50 titles pursuant to 44 U.S.C. 1510.

The Code of Federal Regulations is sold by the Superintendent of Documents. 

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Federal Register / Vol. 86, No. 150 / Monday, August 9, 2021 / Rules 
and Regulations

[[Page 43381]]



DEPARTMENT OF AGRICULTURE

Farm Service Agency

7 CFR Parts 761, 762, 764, 765, 766, and 769

[Docket ID FSA-2021-0002]
RIN 0560-AI44


Heirs' Property Relending Program (HPRP), Improving Farm Loan 
Program Delivery, and Streamlining Oversight Activities

AGENCY: Farm Service Agency, USDA.

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: The Farm Service Agency (FSA) is implementing a new Heirs' 
Property Relending Program (HPRP) authorized in the Agricultural 
Improvement Act of 2018 (the 2018 Farm Bill). HPRP provides loans to 
eligible entities to relend with the purpose of assisting heirs with 
undivided ownership interests resolve ownership and succession issues 
on farms that are owned in common by multiple heirs. The loan funds may 
be used by an ultimate recipient to purchase and consolidate fractional 
interests held by other heirs in jointly-owned property to pay for 
costs and fees associated with developing and implementing a succession 
plan, and to pay for costs associated with buying out fractional 
interests held in tenancy in common by other heirs in jointly-owned 
property to clear the title (for example closing costs, appraisals, 
title searches, surveys, preparing documents, mediation, and legal 
services). FSA is also amending the Farm Loan Programs (FLP) 
regulations to revise its rules related to loan making and servicing to 
improve program delivery and consolidate value-added oversight 
activities.

DATES: 
    Effective date: August 9, 2021.
    Comment due date: We will consider comments that we receive by 
October 8, 2021.

ADDRESSES: We invite you to submit comments on the rule. You may submit 
comments by either of the following methods, although FSA prefers that 
you submit comments electronically through the Federal eRulemaking 
Portal:
     Federal Rulemaking Portal: https://www.regulations.gov and 
search for Docket ID FSA-2021-0002. Follow the instructions for 
submitting comments.
     Mail: Md Mutaleb, Senior Loan Officer, Loan Making 
Division, Deputy Administrator for Farm Loan Programs, FSA, U.S. 
Department of Agriculture, 1400 Independence Avenue SW, Stop 0522, 
Washington, DC 20250-0522. In your comment, specify Docket ID FSA-2021-
0002.
    Comments will be available online at https://www.regulations.gov. A 
copy of this rule is available through the FSA home page at https://www.fsa.usda.gov/.

FOR FURTHER INFORMATION CONTACT: Md Mutaleb; Telephone; telephone: 
(202) 720-3168; email: [email protected]. Persons with disabilities 
or who require alternative means for communication should contact the 
USDA Target Center at (202) 720-2600 (voice).

SUPPLEMENTARY INFORMATION:

Background of HPRP

    FSA is implementing HPRP as authorized in section 5104 of the 2018 
Farm Bill (Pub. L. 115-334), codified in 7 U.S.C. 1936c. FSA will loan 
funds to eligible entities, including cooperatives, credit unions, and 
nonprofit organizations certified to operate as a lender, to serve as 
intermediaries that will relend the funds to individuals and entities 
for purposes that assist heirs with undivided ownership interests to 
resolve ownership and succession issues on a farm that has multiple 
owners (commonly referred to as ``Heirs' Property'').
    In developing HPRP, FSA relied heavily on the design of Rural 
Development's (RD) relending programs, which have a long history of 
success, including the Intermediary Relending Program (IRP) found in 7 
CFR part 4274. FSA considers the IRP to be a successful relending 
program and a good model for achieving the goals of HPRP. In developing 
HPRP, FSA relied on RD's rules, forms, and framework as a model for 
establishing a relending program, while adapting provisions to ensure 
they were workable for HPRP's intermediaries and ultimate recipients.
    FSA considers heirs' property to be land that has been passed down 
to subsequent generations via intestate succession (that is, without a 
will) or via a will that divides real estate assets equally among all 
heirs. When a landowner dies without a last will and testament or 
estate plan, state law determines which heirs or classes of family 
members inherit the land of the deceased, and the ownership share for 
each heir.
    This form of property ownership results in the land being owned in 
common by all heirs-at-law, each of which owns a fractional interest in 
the land. As a result, the absence of clear title prevents the owners 
who farm the land and pay real estate taxes from gaining access to the 
legal, financial, and managerial transactions needed to effectively 
manage the land.
    FSA is amending 7 CFR part 769 to designate the regulations for the 
Highly Fractionated Indian Land Loan Program as subpart A, and to add 
subpart B to specify the requirements for HPRP.
    FSA is adding definitions for the terms ``Heirs' Property,'' ``HPRP 
Loan Agreement,'' ``HPRP Loan Funds,'' ``HPRP Revolving Loan Fund,'' 
``Intermediary,'' ``Revolved Funds,'' ``Succession Plan,'' ``Ultimate 
Recipient,'' and ``Undivided Ownership Interest'' relating to HPRP to 7 
CFR 761.2.
    This rule implements HPRP in order to provide a way for heirs to 
obtain assistance resolving property issues through intermediaries.

Administrative and National Policy Requirements

    Intermediaries will request demographics data from ultimate 
recipients on race, sex (gender), and ethnicity (national origin). The 
response to the data request will be voluntary. Intermediaries will 
maintain the data when voluntarily submitted to them by the ultimate 
recipients. Race and ethnicity data will be collected in accordance 
with the OMB notice published in the Federal Register on October 30, 
1997 (62 FR 58782-58790), ``Revisions to the Standards for the 
Classification of Federal Data on Race and Ethnicity'' and Title VI of 
the Civil Rights Act of 1964 (42 U.S.C. 2000d-1-

[[Page 43382]]

2000d-7). Sex (gender) data will be collected in accordance with Title 
IX of the Education Amendments of 1972 (20 U.S.C. 1681-1688). The 
intermediary does not need to submit these documents with the 
application, but will need to make these documents available when 
requested by FSA. See the Paperwork Reduction Act section below for 
more information.
    HPRP is subject to environmental compliance provisions, which are 
specified in 7 CFR part 799. Therefore, each intermediary is required 
to provide FSA with documentation of its process to address 
environmental issues.

Ultimate Recipient

    An ultimate recipient is an individual or entity that receives a 
loan from an intermediary's HPRP revolving loan fund. The eligibility 
requirements of an ultimate recipient are specified in 7 CFR part 769 
and mirror the requirements that are specified in 7 U.S.C. 1936c. As 
authorized by 7 U.S.C. 1936c(e)(3), individual heirs and entities who 
have an undivided ownership interest in a farm that are willing to 
complete a succession plan as a condition of the loan are eligible to 
be an ultimate recipient of HPRP loan funds. The intent of HPRP is to 
help families resolve titles issues on heirs' property. To ensure the 
HPRP loans are used for this purpose rather than by investors to 
acquire land, FSA has specified the requirement that an ultimate 
recipient must be a family member or heir-at-law related by blood or 
marriage to the previous owner of the real property.

Intermediaries

    As specified in 7 U.S.C. 1936c(c), HPRP provides loan funds to 
intermediaries who will re-lend loan funds to individuals and entities 
with undivided ownership interests in order to resolve ownership and 
succession issues relating to a farm owned in common by multiple 
owners. To address these issues, FSA has determined that HPRP loan 
funds may be used for the following:
     To buy out fractional interests held in tenancy in common 
by other heirs in jointly-owned property, and
     To pay for costs associated with developing and 
implementing a succession plan (such as closing costs, appraisals, 
title searches, surveys, preparing documents, mediation, and legal 
services).
    After researching the heirs' property issue, FSA believes these 
loan purposes will help ultimate recipients resolve title issues by 
financing the purchase of property interests and paying to finance the 
many related costs associated with implementing a succession plan.
    In 7 CFR part 769, and as specified in 7 U.S.C. 1936c(b), FSA 
requires that the intermediary have experience working with socially 
disadvantaged or beginning farmers. As 7 U.S.C. 1936c(d) requires, 
preference is given to intermediaries with not less than 10 years' 
experience serving socially disadvantaged farmers and ranchers and is 
also given to intermediaries located in states that have adopted a 
statute consisting of an enactment or adoption of the Uniform Partition 
of Heirs Property Act.
    Under 7 CFR 769.156, intermediaries are required to determine the 
rates, terms, and payment structure for loans to ultimate recipients in 
an amount sufficient to cover the cost of operating and sustaining the 
revolving loan fund; and must clearly and publicly disclose the loan 
terms and conditions to qualified ultimate recipients. FSA will review 
the annual monitoring reports of intermediaries, as well as provide 
oversight of the intermediary's loan processes and procedures.

Use of HPRP Loan Funds

    The HPRP funds can only be used for the purposes specified in 7 CFR 
769.154 and as explained above.
    Loan limitations are specified in 7 CFR 769.155. FSA is 
establishing maximum limits for loans to intermediaries and ultimate 
recipients to help manage risk and ensure funds are available for 
multiple intermediaries. For ultimate recipients, FSA is establishing 
maximum limits to help ensure that loans are used by family farms 
rather than larger entities. For each application period, loans to 
intermediaries will not exceed $5 million for each intermediary, and 
loans to ultimate recipients will not exceed the loan limit for a 
Direct Farm Ownership loan as specified in 7 CFR 761.8(a)(1)(i) (which 
is currently $600,000).
    In 7 CFR 769.156, the rates and terms for HPRP loans are specified. 
For loans to intermediaries, the FSA Administrator will set the 
interest rate as a fixed rate over the term of the loan of 1 percent or 
less; the repayment term for HPRP loans will not exceed 30 years; and 
annual payments will be established. For loans to ultimate recipients, 
the interest rate will be set by the intermediary within the limits 
established by the intermediary's relending plan approved by FSA; and 
the repayment period may not exceed 30 years.

Intermediary's Relending Plan

    FSA will provide flexibility to the intermediary to develop a 
relending plan to be approved by FSA that governs the use of the HPRP 
revolving loan fund. The relending plan must be approved by FSA prior 
to closing the initial HPRP loan to the intermediary and must include a 
detailed explanation of the intermediary's fund administration policies 
and procedures, and planned use of the HPRP revolving loan fund after 
the funds in the revolving loan fund have revolved. The required 
elements of the relending plan are specified in 7 CFR 769.157; and the 
relending plan must contain, in detail, the policies and procedures 
that the intermediary must follow with respect to the HPRP loan.
    The rates, terms, and payment structure for loans approved by an 
intermediary to an ultimate recipient must be an amount sufficient to 
cover the cost of operating and sustaining the revolving loan fund; and 
must be clearly and publicly disclosed to qualified ultimate 
recipients. In addition, the proposed rates, terms, and payment 
structure of any loan made by the intermediary to an ultimate recipient 
must be reasonable and prudent considering the purpose of the loan, 
expected repayment ability of the ultimate recipient, the useful life 
of the collateral, and must adhere to the terms of the approved HPRP 
loan agreement.

Processing HPRP Loan Applications

    The opening and closing date for the HPRP application submission 
will be announced in a notice in the Federal Register. The initial 
application period will open August 30, 2021 and will close on October 
29, 2021. If funds are not sufficient to fully fund all approved 
applications from intermediaries, 7 CFR 769.159 specifies the 
priorities used to allocate loan funds to intermediaries. In 7 U.S.C. 
1936c(e), it specifies that intermediaries with not less than 10 years' 
experience serving socially disadvantaged farmers and ranchers, and 
that are located in states that have adopted a statute consisting of an 
enactment or adoption of the Uniform Partition of Heirs Property Act 
will receive first priority. After funding has been provided to those 
listed in 7 U.S.C. 1936c(e), FSA will then give priority to 
intermediaries that have applications from ultimate recipients already 
in process, or intermediaries that have a history of fully relending 
previous HPRP funds. Multiple applications in the same priority tier 
will be processed based on the date received. Finally, any

[[Page 43383]]

remaining eligible applications will be funded based on the date 
received.

HPRP Loan Agreement

    An HPRP loan agreement must be executed by the intermediary and FSA 
at loan closing for each loan. The HPRP loan agreement will specify the 
terms of each loan (such as the loan amount, interest rate, term and 
repayment schedule, disbursement procedure, provisions for late 
charges, provisions regarding default, and insurance requirements). As 
a condition of receiving HPRP funds, the intermediary agrees to seek 
prior written approval from FSA before making changes to its articles 
of incorporation, charter, by laws, draft loan documents, security 
policy, or relending policies when any of these are related to HPRP 
loans. In addition, 7 CFR 769.165 states that the intermediary must 
agree to maintain a separate ledger and segregated account for the HPRP 
revolving loan fund; comply with FSA's annual monitoring reporting 
requirements on HPRP activities; and pledge the HPRP revolving loan 
fund and any other form of security that FSA may require.

HPRP Revolving Loan Fund

    Primary security for HPRP will be in the form of a first lien on 
the intermediary's HPRP revolving loan fund. Additional security will 
be required if needed to fully secure the loan.
    The intermediary will be required to establish a revolving loan 
fund that must be maintained for as long as an HPRP loan to an 
intermediary remains unpaid. All HPRP loan funds received by an 
intermediary must be deposited into an HPRP revolving loan fund account 
to be used by the intermediary to provide direct loans to eligible 
ultimate recipients. Such accounts must be fully covered by Federal 
deposit insurance or fully collateralized with other securities in 
accordance with normal banking practices and all applicable State laws. 
Maintenance requirements of the revolving loan fund are specified in 7 
CFR 769.164.

Post Award Requirements

    FSA determined that annual monitoring reports would be both 
necessary for the success of HPRP and to ensure intermediaries' 
compliance with HPRP rules; therefore, FSA will require the 
intermediary to provide reports that include a description of the use 
of loan funds, information regarding the acreage, the number of heirs 
both before and after loan was made, audit findings, disbursement 
transactions, and any other information required by FSA.

Transfer and Assumption of HPRP Loans

    As specified in 7 CFR 769.166, FSA will allow for transfer and 
assumptions of the HPRP loans if an intermediary must discontinue 
participation in HPRP.

Background of Improving Farm Loan Program Delivery and Streamlining 
Oversight Activities

    The Consolidated Farm and Rural Development Act (CONACT) (7 U.S.C. 
1921-2009cc-18) authorizes FSA's Direct and Guaranteed Farm Loan 
Programs. FSA makes and services a variety of direct and guaranteed 
loans to farmers who are unable to obtain private commercial credit 
with reasonable rates and terms. FSA also provides direct loan 
borrowers with credit counseling and oversight. FSA loan applicants are 
often Beginning Farmers (BF) and Socially Disadvantaged (SDA) farmers 
who do not qualify for conventional loans because of insufficient net 
worth, or established farmers who have suffered financial setbacks due 
to natural disasters or economic downturns.
    This rule streamlines and consolidates to improve program delivery, 
to improve the oversight of direct loan servicing activities, and to 
eliminate requirements that are costly, repetitive, or do not further 
the program's goals. These changes will reduce burden on farmers, 
ranchers, and FSA staff.
    The loan making and servicing revisions included in this rule are 
intended to improve delivery of farm loans. More specifically, as 
explained in further detail below, this rule:
     Corrects the spelling of ``down payment'' throughout the 
regulations;
     Revises the family farm definition to ensure applicants 
are the operator of a farm;
     Adds a definition of non-monetary default.
     Authorizes the use of appraisals completed within the 
previous 18 months for loan making and servicing actions;
     Provides additional guidance on the use of supervised bank 
accounts;
     Modifies operating plan development rules to authorize 
realistic county or state average yields to be used in place of actual 
producer yields during disaster years;
     Modifies the requirement to verify applicant debts for 
loan program participants;
     Clarifies that entity members holding at least 50 percent 
interest in the entity must be the owners and operators of the farm;
     Clarifies that costs associated with compliance of the 
Occupational Safety and Health Act of 1970 are an eligible use of 
guaranteed Operating Loan (OL) funds;
     Corrects an existing cross reference to crop insurance 
regulations;
     Revises direct loan application review and response 
timeframes;
     Exempts non-essential assets valued up to $15,000 from 
being pledged as security for direct loan applicants;
     Authorizes fixtures as an authorized use of funds for 
direct operating loans;
     Authorizes an annual OL and Emergency Loan (EM) to carry a 
repayment term of 24 months;
     Authorizes a waiver of previously required borrower 
training requirements;
     Eliminates obsolete supervisory language and replaces it 
with language to better reflect FSA's current resources and mission;
     Ties the assessment to the frequency of required 
classification or graduation reviews;
     Eliminates year end analysis requirement for borrowers who 
received a direct loan, chattel subordination, or primary loan 
servicing action during the previous year;
     Changes the limited resource review requirement from 
annually to every 2 years;
     Adds sole member LLCs to the protections for borrowers 
entering the armed forces;
     Prohibits large-scale surface leases for non-agricultural 
purposes;
     Eliminates appraisal requirement on release of property 
without monetary consideration where FSA is well secured;
     Raises the estimated value for the appraisal requirement 
from $25,000 to $50,000;
     Increases the processing time for Primary Loan Servicing 
applications from 60 days to 90 days when a real estate appraisal is 
required; and
     Allows a borrower to accept a non-writedown offer and 
waive the need for a writedown offer when an appraisal would be 
required for the writedown offer.

Spelling of ``Down Payment''

    Currently, the regulations use the term ``downpayment'' as one word 
in twelve locations. As ``downpayment'' is a misspelling, this rule 
corrects the term to ``down payment'' as two separate words.

Family Farm Definition

    Eligibility criteria for most direct and guaranteed farm loans 
requires an applicant to operate a ``family farm.''

[[Page 43384]]

The definition of a ``family farm'' is provided in 7 CFR 761.2(b).
    It is commonly understood that the borrower themselves will provide 
substantial labor and make the majority of daily operating decisions 
and all strategic business decisions associated with the operation. 
However, the existing definition allows operational inputs to be 
provided by the borrower and relatives, with no delineation as to how 
much management or labor is specifically expected of the borrower or 
the relative. This can result in an individual obtaining a farm loan 
with the intention of having a relative operate the farm for all 
practical purposes, essentially relegating the borrower to a minor 
role.
    This rule amends the definition of ``family farm'' to close the 
unintended loophole that would create a scenario where the borrower has 
only a minor role in actually operating the farm, while maintaining the 
ability of a borrower to rely on management and labor input from 
relatives. Specifically, this rule amends the definition of ``family 
farm'' to require the borrower to be the one to provide the required 
substantial labor, and make the majority of daily operating decisions, 
and all strategic management decisions; while the relatives can provide 
input and assistance with both the labor to operate the farm and daily 
operating and strategic management decisions.

Addition of Non-Monetary Default Definition

    FSA is adding the definition of ``non-monetary default'' to the 
general program definitions in 7 CFR 761.2. Previously, certain FSA 
documents contained this definition, and FSA is incorporating it into 
its regulations. No change is being made to the definition.

Use of Appraisals Issued Within 18 Months

    Appraisals of proposed real estate loan security are necessary to 
ensure farm loans are adequately collateralized. Currently in 7 CFR 
761.7, an appraisal can be relied upon to determine security values if 
it was completed within the previous 12 months and if market values 
have remained stable since the original appraisal was completed.
    Many applicants apply for additional loan making or servicing 
benefits at the end of a crop year, typically within 12 to 18 months of 
when initial loan benefits were obtained. If subsequent loan making or 
servicing benefits require appraised values of real estate collateral, 
an updated appraisal typically needs to be obtained as the original 
appraisal was completed more than 12 months prior. This results in 
significant additional time and cost to obtain an updated appraisal 
that often results in only minor changes in value.
    This rule amends 7 CFR 761.7(c) and 766.202(a) to allow the use of 
real estate appraisals completed within the previous 18 months if FSA 
determines market values have remained stable.

Supervised Bank Account Guidance

    Supervised bank accounts are accounts with financial institutions 
established through a deposit agreement entered into between the 
borrower, FSA, and the financial institution. To ensure direct loan 
funds are used for authorized purposes, 7 CFR 761.51(a) describes the 
various uses of a supervised bank account.
    This rule amends 7 CFR 761.51(a) to memorialize the current 
practice in the regulation and specify additional common uses of 
supervised bank accounts that are currently described in administrative 
handbook guidance including construction and site development work, and 
sale of basic security.

Substituting Realistic County or State Yields To Develop Operating 
Plans

    Projected yields used to develop farm operating plans for direct 
loans are typically calculated using the applicant or borrower's own 
production history for the previous 3 years. Currently, if an applicant 
for a direct loan has historical yields in the previous 3 years that 
are substantially affected by a qualifying declared disaster, 7 CFR 
761.104(c)(4)(i) allows the applicant or borrower to choose to use 
county or state average yields in place of their actual disaster year 
yields when developing a farm operating plan.
    While the existing rule often ensures reasonable and accurate yield 
projections, substituting disaster year yields with county or state 
average yields does not always result in the development of realistic 
operating plans. While it is particularly rare, it can occur when 
county or state average yields are higher than an applicant's yields in 
non-disaster years.
    Section 331E(a) of the CONACT (7 U.S.C. 1981e(a)), requires farm 
operating plans be based on accurate projections. To ensure accurate 
plans are developed, this rule amends 7 CFR 761.104(c)(4)(i) to allow 
for the use of county or state yields only when those yields are 
realistic and reasonable compared to an applicant's actual non-disaster 
year yields.
    If the agency approval official determines the county or state 
yields are not realistic and reasonable compared to an applicant's 
actual non-disaster year yields, the applicant or borrower may no 
longer exercise the provision in 7 CFR 761.104(c)(4)(i), but may 
continue to exercise the provision in 7 CFR 761.104(c)(4)(ii), 
authorizing the exclusion of the production year with the lowest actual 
or county average yield if their yields are affected by disasters in at 
least 2 of the 3 years.
    This amendment will help ensure the success of an applicant or 
borrower by ensuring the development of farm operating plans based only 
on realistic and reasonable yield projections.

Loan Debt Verification

    Guarantee loan applications and direct loan debt settlement 
applications require verification of all applicant debts over $1,000. 
However, direct loan making applications require verification of all 
applicant debts over $5,000. The direct loan making program increased 
this threshold from $1,000 to $5,000 administratively in November 2020 
as regulations governing the direct loan program do not identify the 
dollar threshold for requiring debt verifications.
    To ensure consistency among loan programs, this rule amends 7 CFR 
761.405(a)(6), 762.110(d) and 762.145(b) to allow FSA to 
administratively establish the minimum threshold for debt verification 
on guaranteed loans. FSA is setting the threshold at $5,000 initially 
to be consistent with the direct loan making program. This change will 
improve program delivery by reducing the time required for an applicant 
to complete an application and reducing the time required by FSA to 
analyze an application. Program integrity will not be compromised as 
all significant debts will continue to be verified, and credit reports 
will continue to be obtained to verify debts of all sizes from lenders 
reporting to credit bureaus.

Entity Owner and Operator Requirements

    The entity owner-operator rules for direct and guaranteed farm 
ownership loans are stated similarly and both have the same minor 
inconsistency. The rules initially state that when entity members are 
not related, the members holding a majority interest must own and 
operate the farm. However, the rule subsequently states that members of 
the farm entity (real estate) must own at least 50 percent of the 
family farm (operating entity). As 50 percent ownership does not 
constitute a majority, this minor inconsistency can cause confusion for 
applicants who are unsure if they can own the farm

[[Page 43385]]

themselves if they only own 50 percent of the operating entity.
    This rule amends 7 CFR 762.120(i)(2) and (j)(2), 764.101(k), and 
764.152(c) to ensure the rules consistently state that members owning 
at least 50 percent of the entity must own the farm.

Guaranteed Operating Loan Use of Funds

    Direct and guaranteed operating loan funds may be used to cover the 
costs associated with compliance with the standards established by the 
Occupational Safety and Health Act of 1970 (OSHA). Under 7 CFR 
764.251(a)(8), direct operating loan funds can be used for expenses 
involving OSHA compliance if the applicant demonstrates that compliance 
or non-compliance with the standards will cause substantial economic 
injury.
    This rule amends the guarantee operating loan use of funds 
regulation in 7 CFR 762.121(a)(1)(ix) to match the regulation covering 
direct operating loan use of funds in 7 CFR 764.251(a)(8). 
Specifically, this rule adds the term ``or non-compliance'' to 7 CFR 
764.121(a)(1)(ix) to clarify that the applicant may receive assistance 
if they demonstrate that the cost of compliance or resolving ``non-
compliance'' with standards will cause substantial economic injury. 
This provides applicants additional flexibility to demonstrate the need 
for this assistance and encourages applicants to bring their operations 
into compliance with OSHA standards.

Reference to Crop Insurance

    This rule amends 7 CFR 762.123(2)(i) to correct a cross reference 
to crop insurance requirements. The correct reference is 7 CFR 400.651.

Timeframes for Direct Loan Application Processing

    Per 7 CFR 764.52(a), applicants for direct loan program benefits 
currently wait up to 10 calendar days from the date of application 
before they are notified whether their application for loan benefits is 
complete, or what additional information is required in order to 
complete the application. If additional information is required of the 
applicant, FSA provides written notice to the applicants that they must 
submit the information within 20 calendar days (see 7 CFR 764.52(a)). 
Should outstanding items still remain at the end of that 20-day period, 
7 CFR 764.52(b) requires that FSA provides the applicant with an 
additional notification letter allowing for 10 additional days before 
the application would be withdrawn due to a lack of information.
    To improve customer service and reduce application processing 
times, this rule amends 7 CFR 764.52(a) and (b) to reduce application 
processing time from within 10 days to 7 days. FSA will review an 
initial application for completeness, and provide an applicant two 15-
day opportunities to provide outstanding application items required to 
make an application complete.
    Applicants will still be provided a total of 30 days to submit 
outstanding items for a complete application. However, modifying the 
initial incomplete letter response date from 20 to 15 days, and 
expanding the response timeframe of the second incomplete letter from 
10 to 15 days, will result in improved processing timeframes as 
applicants will often make concerted efforts to ensure an application 
is completed within the timeframes provided in the initial response 
letter.

Non-Essential Asset Security Requirements

    To reduce FSA credit needs or other outstanding obligations, direct 
loan applicants are required to liquidate or pledge non-essential 
assets with an aggregate value of over $5,000. An applicant may choose 
to not liquidate assets, and instead pledge the assets as security for 
the loan. The intent behind this rule is that FSA is assisting only 
those customers who truly require assistance.
    This rule amends 7 CFR 764.103(e) to increase the allowable 
aggregate value of non-essential assets to be maintained by the 
borrower up to $15,000 without having to pledge those assets as 
security. This adjustment is necessary to account for inflationary 
increases value of goods and allow a reasonable amount of non-essential 
assets to be retained.

Direct Operating Loan Use of Funds

    Direct and guaranteed operating loan funds may be used to cover the 
purchase of equipment, which sometimes can be construed as minor 
fixtures to real property, including but not limited to, irrigation 
equipment or small wind machines. While it is commonly understood that 
mechanical equipment that are fixtures are eligible for both direct and 
guaranteed operating loan purposes, currently only the guaranteed 
operating loan rules specifically state fixtures are an authorized use 
of funds.
    This rule amends the direct operating loan use of funds regulation 
in 7 CFR 764.251(a)(2) to memorialize the current practice in the 
regulation by matching the rule covering guaranteed operating loan use 
of funds in 7 CFR 762.121(a). Specifically, this rule adds the term 
``or fixtures'' to 7 CFR 764.251(a)(2) to specify that farm equipment 
or fixtures are an authorized use of direct operating loan funds.

Annual OL and EM Repayment Terms

    Working capital requirements for farms have become increasingly 
complex with the advent of new commodities, production techniques, 
commodity storage technologies, and marketing systems. This has 
resulted in earlier preparation and plantings and extended marketing 
periods for a single crop. Currently, the repayment term of an annual 
direct OL and annual EM loan may not exceed 18 months, unless there are 
specific unusual circumstances and security other than the commodity 
available to fully secure the loan. As a result, loans to producers who 
would typically require an annual operating loan term of up to 24 
months are limited to a term of just 18 months. This will sometimes 
result in the producer being unable to repay a loan at maturity, 
thereby requiring a restructure of their account to provide additional 
time to repay the loan. This is an unnecessary administrative burden 
for both the borrower and Agency.
    This rule amends 7 CFR 764.254(b)(1) and 764.354(b)(3) to allow the 
standard repayment term of an annual direct OL and annual EM to be up 
to 24 months. This will ensure producers whose industry includes unique 
commodities, technologies or marketing systems are not disenfranchised 
from farm loan program benefits.

Borrower Training Waivers

    Currently, unless previously completed, an applicant must agree to 
financial and production training at the time of application. As 
specified in 7 CFR 764.453, FSA may choose to waive training 
requirements should the applicant's history suggest they have undergone 
similar training, if training would not be beneficial to the applicant, 
or if training is not available. Borrowers are required to complete 
assigned financial or production training within 2 years from the date 
of loan closing, with the possibility of a 1-year extension in certain 
circumstances. However, a borrower cannot have previously required 
training requirements waived.
    There are numerous circumstances that might justify a waiver of 
previously required borrower training. For example, a borrower may have 
voluntarily completed training from a non-approved vendor that results 
in demonstratable increased knowledge of and proficiency in financial 
or production concepts. However, even if

[[Page 43386]]

it is clear the borrower will not benefit from an approved vendor's 
training, there is no mechanism for FSA to provide a waiver of the 
previously required training.
    This rule amends 7 CFR 764.453 by adding a new provision to allow 
FSA to waive previously required borrower training, if warranted, by 
reviewing evidence already obtained from an applicant that demonstrates 
the applicant now possesses experience and training necessary for a 
successful and efficient operation.

Progression Lending

    FSA is revising outdated provisions in the regulations. 
Historically, FSA and its predecessor Agency, the Farmers Home 
Administration, has used the term ``supervised credit'' to describe its 
role as serving as a temporary source of credit for farmers and 
ranchers unable to secure commercial credit, often beginning or 
underserved famers, or those who suffered financial setbacks due to 
adverse weather or economic conditions. FSA is seeking to modify this 
long-term description of its role with more customer friendly language 
that is reflective of our mission to serve as a temporary source of 
credit and assist the borrower in graduating to commercial credit.
    Therefore, FSA is replacing references to ``supervision'' 
throughout 7 CFR part 761 with the term ``progression lending'' or 
similar pro-graduation terminology.

Assessment

    Regulations at 761.103 provide FSA, in collaboration with the loan 
applicant, will assess the farming operation to determine the 
applicant's financial condition organizational structure, and 
management strengths and weaknesses; identify and prioritize training 
needs; and develop a plan to assist the applicant in transitioning to 
commercial credit. As provided in 7 CFR 761.103(e), FSA reviews the 
assesment annually to determine the borrower's progress. Additionally, 
FSA classifies accounts as required by the Consolidated Farm and Rural 
Development Act and reviews accounts classified as ``commercial'' or 
``standard'' for graduation to commercial credit. The regulation in 7 
CFR 761.103(e) is being revised to clarify that the assessment review 
will be completed simultaneously with the classification or graduation 
review every other year to improve the efficiency of interactions 
between FSA and borrowers by minimizing the number of meetings required 
to fulfill loan servicing requirements.

Year-End Analyses

    The regulations in 7 CFR 761.105 require FSA to conduct a year-end 
analysis (YEAs) if the borrower has received any direct loan (except 
for streamlined Conservation loans), chattel subordination, or primary 
loan servicing action within the last year. In order to better manage 
the limited time resources of FSA staff, FSA is revising 7 CFR 761.105 
to eliminate the requirement to complete YEAs on chattel subordinations 
that are current or paid in full and Primary Loan Servicing actions 
successfully completed in the last year. FSA would continue to complete 
YEAs on financially distressed or delinquent borrowers and on borrowers 
with deferred loan payments. YEAs would also be required for existing 
borrowers receiving new direct loans or new subordinations.

Limited Resource Reviews

    The regulations in 7 CFR 761.51 require FSA to conduct a review of 
each borrower receiving limited resource interest rates each year. Due 
to low interest rates, limited resource interest rates have been higher 
than the regular program interest rates, and have significantly reduced 
the demand for limited resource rates over the last decade. Also, cash 
flows for farming operations do not typically change significantly from 
year to year. Therefore, FSA is amending 7 CFR 761.51 to require a 
limited resource review every 2 years. This will reduce the workload 
for the FSA field staff when interest rates rise again. Reviewing the 
rates every 2 years will also tie in with the current classification 
and graduation review requirements and permit FSA loan officials to 
continue to monitor the borrower's progress, while reducing the number 
of appeals.

Borrower Entering the Armed Forces

    Section 332 of the CONACT states that a mobilized military 
reservist is an ``individual;'' but FSA's regulations do not address 
whether FSA considers sole member operating entities to be individuals 
for the purposes of section 332 of the CONACT. FSA is amending the 
regulations by adding a new 7 CFR 765.161 to specify that a sole member 
operating entity falls under the protections provided by section 332 of 
the CONACT.

Surface Leases

    The regulations in 7 CFR 765.252 address surface and mineral 
leases, but do not specifically address large scale surface leases for 
non-agricultural purposes, such as solar farms, that take many acres 
out of agriculture production. FSA is experiencing increased demand for 
these types of leases from borrowers, which remove large tracts of land 
from agricultural production. This can significantly impact the market 
value of FSA loan security, including the value of non-farm tracts and 
can potentially place the borrower in non-monetary default for not 
farming the loan security. FSA is amending 7 CFR 765.252 to prohibit 
leases for purposes such as developing a solar farm. Leases for nonfarm 
purposes which do not require acreage to be taken out of agricultural 
production or on non-productive land may be considered.

Release Without Compensation

    The regulations in 7 CFR 765.351 allow FSA to release collateral 
without monetary consideration in cases where the agency is well-
secured, and the borrower has not had a disaster set-aside or primary 
loan servicing in the previous 3 years. The regulation states that the 
value of retained and released security will be evaluated. FSA is 
amending 7 CFR 765.351 to eliminate the appraisal requirement on the 
property being released. This will reduce workload on field offices, 
improve customer service by reducing the time it takes to process 
releases, and result in cost savings to the Government since FSA pays 
for these appraisals.

Appraisal Waiver

    The regulations in 7 CFR 765.353 permits FSA to waive an appraisal 
requirement when the estimated value is less than $25,000. This waiver 
has been in place since 2004. With inflation, the value of the $25,000 
is now $34,000. In addition, there is a considerable amount of 
comparable sale information available to allow loan officials to obtain 
an accurate estimate of property value. FSA is amending 7 CFR 765.353 
to increase the limit to $50,000. The amendment will improve customer 
service by reducing the time it takes to process releases. More 
importantly, it will provide significant cost savings to the Government 
since FSA pays for these appraisals.

PLS Notification Timeframe

    CONACT section 353(c)(4) provides FSA with 90 days to process 
primary loan servicing (PLS) and to notify borrower of its decision. 
Primary loan servicing includes debt consolidation, restructuring, 
reamortization, deferral, and debt writedown. The regulations in 7 CFR 
766.106 reduced the PLS processing timeframe to 60 days. Increasing the 
timeframe to 90 days for cases where a real estate appraisal is

[[Page 43387]]

required (typically for debt writedown or conservation contract) will 
permit the local FSA agency official an additional 30 days to complete 
PLS processing. Real estate appraisals often take weeks to obtain, 
which causes delay to the final PLS decision. Therefore, FSA is 
amending 7 CFR 766.106 to increase this timeframe to 90 days when a 
real estate appraisal is required.

Writedown and Non-Writedown Offers

    The regulations in 7 CFR 766.111 require that a borrower be offered 
both a writedown and non-writedown restructuring offer when both result 
in a feasible plan, even though the writedown offer can take longer to 
develop and requires additional appraisals. Often, the borrower does 
not request the writedown consideration since it results in debt 
forgiveness and can negatively impact eligibility for future loan 
assistance. Because FSA is required to complete the appraisals to 
determine a writedown amount, in many cases unnecessary time and 
expense is incurred for this process to be completed. As a result, FSA 
is amending 7 CFR 766.111 to allow the borrower to waive the writedown 
offer when the non-writedown offer results in a feasible plan. The 
change will result in a significant savings of FSA time and cost of 
obtaining appraisals in instances where the borrower does not request a 
writedown. FSA will discuss the alternatives with the borrower and will 
consider a writedown if desired. This modification will allow borrowers 
to make an informed decision regarding a writeddown and limitations 
established by Section 355 of the CONACT which only allows a borrower 
one writedown, not to exceed $300,000.

Notice, Comment, and Effective Date

    The Administrative Procedure Act (5 U.S.C. 553) provides that the 
notice and comment and 30-day delay in the effective date of the 
provisions do not apply when the rule involves a matter relating to 
agency management or personnel or to public property, loans, grants, 
benefits, or contracts (5 U.S.C. 553(a)(2)). This rule involves loans 
and therefore falls within that exemption. In addition, because this 
rule is exempt from the requirements in 5 U.S.C. 553, is it also exempt 
from the regulatory analysis requirements of the Regulatory Flexibility 
Act (5 U.S.C. 601-612), as amended by the Small Business Regulatory 
Enforcement Fairness Act of 1996 (SBREFA). The requirements for the 
regulatory flexibility analysis in 5 U.S.C. 603 and 604 are 
specifically tied to the agency being required to issue a proposed rule 
by section 553 or any other law, further, the definition of rule in 5 
U.S.C. 601 is tied to the publication of a proposed rule.
    This rule is not a major rule for purposes of the Congressional 
Review Act; therefore, FSA is not required to delay the effective date 
for 60 days from the date of publication to allow for Congressional 
review. Consequently, this rule is effective upon publication in the 
Federal Register.

Executive Orders 12866 and 13563

    Executive Order 12866, ``Regulatory Planning and Review,'' and 
Executive Order 13563, ``Improving Regulation and Regulatory Review,'' 
direct agencies to assess all costs and benefits of available 
regulatory alternatives and, if regulation is necessary, to select 
regulatory approaches that maximize net benefits (including potential 
economic, environmental, public health and safety effects, distributive 
impacts, and equity). Executive Order 13563 emphasized the importance 
of quantifying both costs and benefits, of reducing costs, of 
harmonizing rules, and of promoting flexibility. The requirements in 
Executive Orders 12866 and 13573 for the analysis of costs and benefits 
to loans apply to rules that are determined to be significant.
    The Office of Management and Budget (OMB) designated this rule as 
significant under Executive Order 12866, and therefore, OMB has 
reviewed this rule. The costs and benefits of this rule are summarized 
below. The full cost benefit analysis is available on regulations.gov.

Cost Benefit Analysis Summary

    HPRP assists in the resolution of heirs' property issues through 
intermediary lenders (experienced non-governmental non-profit 
organizations). HPRP assists intermediary lenders in the establishment 
of revolving funds for the purpose of financing owners of heirs' 
property seeking to resolve land titles.
    The benefits are derived from clearly identifying the titles or 
deeds \1\ to agricultural land by assisting with legal services and 
providing funding for heirs to buy out other heirs' interest in jointly 
held land, resulting in improved participants' financial standing. 
Landowners with a clear title will have greater access to credit and 
will be able to more easily participate in Federal and State farm and 
conservation programs, leading to increased land values. The net 
benefit of HPRP is estimated using a present value analysis of the 
beneficial cash flows for an average program participant. This estimate 
is then summed over the total number of heirs' properties traditionally 
used for agriculture in Uniform Partition of Heirs Property Act states.
---------------------------------------------------------------------------

    \1\ ``In real property law: Title is the means whereby the owner 
of lands has the just possession of his property. Co. Litt 345; 2 
Bl. Comm. 195. Title is the mean whereby a person's right to 
property is established. Code Ga. 1S82.'' (Black's Law Dictionary). 
Proof of title to land is usually shown by a deed filed in real 
estate records in the county where the land is located. ``Clear 
title'' means that there is no competing claim of ownership or 
interest in the property--that is, no other person or entity can 
claim a superior right of ownership or financial interest in the 
property.
---------------------------------------------------------------------------

    Over the course of a 20-year period, when all the estimated impacts 
of HPRP are summed up, there are a little over $1.109 billion in 
benefits compared to total costs of $869 million for a total net 
benefit of $239.7 million.

                Economic Benefit and Cost of HPRP to USDA
                              [In millions]
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Total Benefits..........................................        $1,108.7
Total Costs.............................................         (869.0)
Net Benefit of HPRP.....................................           239.7
------------------------------------------------------------------------

    Heirs' property values are expected to be restored to fair market 
value resulting in a benefit of $365 million that includes a $209 
million effect to access to direct government payments that accrue 
primarily to socially disadvantaged landowners (see table below). The 
increase in credit made available from the ability to collateralize the 
market value of heirs' property is estimated to lead to incremental 
cash flows in farm income worth a little over $122 million. In 
addition, clear title allows increased opportunity for enrollment in 
farm programs, which has

[[Page 43388]]

a direct value of almost $299 million. The legal costs and interest 
charges on the loans used to pay them reduce this amount by almost $295 
million. Additionally, untitled co-tenants, who are typically family 
members of the heir gaining title, gain $171 million when they are 
bought out. However, this is also a cost to the titled heir and so has 
a neutral effect on the participants' costs and benefits. Therefore, 
net expected benefits to HPRP participants are estimated at $654 
million.
    Net benefits of nearly $133 million also accrue to the intermediary 
lenders. This results from $158 million in returns to lending minus $25 
million in servicing and marketing costs.
    Costs to the Federal Government are estimated to be $547 million, 
but $508 million are direct Farm Program payments and their impact on 
the sales value of properties that are transfers from a society-wide 
perspective (included in the table below as both a benefit and a cost 
of HPRP, so they become a net cost of zero). Actual program costs to 
the Federal Government are estimated to be only $39 million over 20 
years. This includes the 20 years of appropriations and administrative 
costs of HPRP. When all costs are considered, the net benefit of HPRP 
is estimated to be $240 million.

     Economic Benefit and Cost of HPRP Life of Program (20 Years) by
                               Stakeholder
                              [$ millions]
------------------------------------------------------------------------
 
------------------------------------------------------------------------
                            HPRP Participants
------------------------------------------------------------------------
Benefits:
    Restoration of Sales Value (without USDA payments)..          $147.3
    Net Increase in Sales Value of Properties due to               209.1
     USDA payments......................................
    Increase in Net Farm Income (without USDA payments).           122.4
    Benefit to Untitled Co-tenants from Buy-outs........           170.9
    Direct Government Payments..........................           298.6
                                                         ---------------
        Total Benefits..................................           948.3
Costs:
    Legal Services......................................         (117.9)
    Purchasing Interests of Co-tenants..................         (170.9)
    Loan Application Paperwork..........................           (5.7)
                                                         ---------------
        Total Costs.....................................         (294.5)
        Net Expected Benefit............................           653.8
------------------------------------------------------------------------
                          Intermediary Lenders
------------------------------------------------------------------------
Benefit--Returns to Loans...............................           157.6
Cost--Non-interest Expense..............................          (12.0)
Cost--Communication Expense.............................          (12.6)
                                                         ---------------
    Net Expected Benefit................................           133.0
------------------------------------------------------------------------
                                   FSA
------------------------------------------------------------------------
Cost--Budget and Subsidy Costs..........................          (41.4)
Cost--Administrative Costs..............................           (0.8)
Benefit--Offset Returns to Loans........................            $2.8
Total--Administrative and Budget Costs..................          (39.4)
Transfer--Direct USDA Payments..........................         (298.6)
Transfer--Impact to Sales Value due to USDA payments....         (209.1)
                                                         ---------------
    Net Expected Cost...................................         (547.1)
        Net Benefit of HPRP.............................           239.7
------------------------------------------------------------------------

    Separate from heirs' property considerations, the final rule also 
streamlines and consolidates various loan-making processes, thereby 
reducing unnecessary burdens on customers and FSA personnel. These 
changes are minor and are not expected to affect budget considerations 
associated with farm loan program lending authorities. As a result, no 
further analysis of these changes is provided in the cost benefit 
analysis for this rule.

Environmental Review

    The environmental impacts of this final rule have been considered 
in a manner consistent with the provisions of the National 
Environmental Policy Act (NEPA, 42 U.S.C. 4321-4347), the regulations 
of the Council on Environmental Quality (40 CFR parts 1500-1508), and 
the FSA regulations for compliance with NEPA (7 CFR part 799). This 
rule implements the new HPRP, as authorized by the 2018 Farm Bill.
    The discretionary provisions needed to implement HPRP, specifically 
those relating to FSA loans to the intermediaries include the loan 
making and servicing rules. One discretionary provision that will not 
mirror current FSA direct and guaranteed loan programs rules is that 
implementation will be through an intermediary that will relend the 
HPRP funds. HPRP funds may not be used for new development or change in 
land use. All discretionary aspects of these loan actions are covered 
by the Categorical Exclusions in 7 CFR 799.31(b).
    FSA will continue to require site-specific reviews for each loan 
application, as defined in Sec. Sec.  799.31, 799.32, and 799.33. As 
such, FSA will not prepare an environmental assessment or environmental 
impact statement for this regulatory action.

[[Page 43389]]

Executive Order 12988

    This rule has been reviewed in accordance with Executive Order 
12988, ``Civil Justice Reform.'' This rule will not preempt State or 
local laws, regulations, or policies unless they represent an 
irreconcilable conflict with this rule. The rule does not have 
retroactive effect. The administrative appeal provisions of 7 CFR parts 
11 and 780 are to be exhausted before any judicial action may be 
brought regarding the provisions of this rule.

Executive Order 13175

    This rule has been reviewed in accordance with the requirements of 
Executive Order 13175, ``Consultation and Coordination with Indian 
Tribal Governments.'' Executive Order 13175 requires Federal agencies 
to consult and coordinate with Tribes on a Government-to-Government 
basis on policies that have Tribal implications, including regulations, 
legislative comments or proposed legislation, and other policy 
statements or actions that have substantial direct effects on one or 
more Indian Tribes, on the relationship between the Federal Government 
and Indian Tribes or on the distribution of power and responsibilities 
between the Federal Government and Indian Tribes.
    The USDA's Office of Tribal Relations (OTR) has assessed the impact 
of this rule on Indian Tribes and determined that this rule does have 
Tribal implications. OTR has determined that Tribal consultation under 
Executive Order 13175 is not required at this time and two different 
opportunities were afforded to consult on this topic. If a tribe 
requests consultation, FSA will work with OTR to ensure meaningful 
consultation is provided where changes, additions, and modifications 
identified in this rule are not expressly mandated by law. OTR strongly 
suggests that the FSA Outreach plan be implemented as soon as possible 
for our tribal stakeholders.
    Tribal consultation for this rule was included in the 2018 Farm 
Bill consultation held on May 1, 2019, at the National Museum of the 
American Indian, in Washington, DC. The portion of the Tribal 
consultation relative to this rule was conducted by Bill Northey, as 
the USDA Under Secretary for the Farm Production and Conservation 
mission area at that time, as part of the Title I session. There were 
no specific comments from Tribes on this rule during Tribal 
consultation.
    There was a second Tribal Consultation on the Implementation of the 
2018 Farm Bill held at the National Congress for the American Indian 
conference on June 26, 2019, in Sparks, Nevada. This rule was not 
raised as an issue by the Tribal leaders. Tribes can request 
consultation at any time. FSA will work with OTR to ensure meaningful 
consultation is provided where changes, additions, and modifications 
identified in this rule are not expressly mandated by law.

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandate Reform Act of 1995 (UMRA, Pub. L. 
104-4) requires Federal agencies to assess the effects of their 
regulatory actions on State, local, or Tribal governments or the 
private sector. Agencies generally must prepare a written statement, 
including a cost benefit analysis, for proposed and final rules with 
Federal mandates that may result in expenditures of $100 million or 
more in any 1 year for State, local, or Tribal governments, in the 
aggregate, or to the private sector. UMRA generally requires agencies 
to consider alternative methods and adopt the more cost effective or 
least burdensome alternative that achieves the objectives of the rule. 
This rule contains no Federal mandates under the regulatory provisions 
of Title II of the Unfunded Mandates Reform Act of 1995 for State, 
local, or Tribal governments, or the private sector. Therefore, this 
rule is not subject to the requirements of sections 202 and 205 of 
UMRA.

Paperwork Reduction Act

    FSA expects to have fewer than 10 intermediary lenders eligible to 
participate in HPRP annually. There are limited entities that will 
qualify to be intermediary lenders for HPRP. Current appropriations 
will not fund a significant number of intermediary lenders. Therefore, 
HPRP would not require OMB approval under the Paperwork Reduction Act 
of 1995 (44 U.S.C. 3501-3520). The annual monitoring reports and the 
agreements approved by FSA that were discussed above will be provided 
by the intermediary lenders. We will provide the USDA form for the 
voluntary collection of race, ethnicity, and gender from the ultimate 
recipients (form AD-2106, Form to Assist in Assessment of USDA 
Compliance with Civil Rights Laws). As noted above, the intermediaries 
will request the information and maintain it. The public burden for the 
use of the form is covered under OMB control number 0503-0019.
    The program delivery and oversight changes will not impact the 
burden estimate for the information collection for FSA's farm loans.
    Additionally, FSA will not be collecting any information from the 
ultimate recipients who receive funds pursuant to Heirs' Property 
Relending. There are application and reporting requirements on HPRP 
activities from intermediaries to FSA. The intermediaries must allow 
FSA to review the ultimate recipients' records; the intermediary's 
records are expected to be a part of customary and usual business 
practices for processing loans. Therefore, the burden associated with 
recordkeeping is excluded. FSA will lend funds to an eligible entity, 
which will then relend directly to an individual or an entity. The 
intermediary lender will be an entity that meets certain criteria to be 
established by FSA. Examples of such criteria include requirements that 
the intermediary lender:
    (1) Is certified as a community development financial institution 
under 12 CFR 1805.201 (or successor regulations) to operate as a 
lender; and
    (2) Has the requisite experience and capability to make and service 
agricultural and commercial loans that are similar in nature to HPRP.

Federal Assistance Programs

    The title and number of each Federal Assistance Program found in 
the Catalog of Federal Domestic Assistance, to which this rule applies, 
are:
    10.099 Conservation Loans;
    10.404 Emergency Loans;
    10.406 Farm Operating Loans;
    10.407 Farm Ownership Loans; and
    10.128 Heirs' Property Relending Program.

USDA Non-Discrimination Policy

    In accordance with Federal civil rights law and U.S. Department of 
Agriculture (USDA) civil rights regulations and policies, USDA, its 
Agencies, offices, and employees, and institutions participating in or 
administering USDA programs are prohibited from discriminating based on 
race, color, national origin, religion, sex, gender identity (including 
gender expression), sexual orientation, disability, age, marital 
status, family or parental status, income derived from a public 
assistance program, political beliefs, or reprisal or retaliation for 
prior civil rights activity, in any program or activity conducted or 
funded by USDA (not all bases apply to all programs). Remedies and 
complaint filing deadlines vary by program or incident.
    Persons with disabilities who require alternative means of 
communication for program information (for example, braille, large 
print, audiotape, American Sign Language, etc.) should contact the

[[Page 43390]]

responsible Agency or USDA TARGET Center at (202) 720-2600 (voice and 
TTY) or contact USDA through the Federal Relay Service at (800) 877-
8339. Additionally, program information may be made available in 
languages other than English.
    To file a program discrimination complaint, complete the USDA 
Program Discrimination Complaint Form, AD-3027, found online at https://www.usda.gov/oascr/how-to-file-a-program-discrimination-complaint and 
at any USDA office or write a letter addressed to USDA and provide in 
the letter all the information requested in the form. To request a copy 
of the complaint form, call (866) 632-9992. Submit your completed form 
or letter to USDA by mail to: U.S. Department of Agriculture, Office of 
the Assistant Secretary for Civil Rights, 1400 Independence Avenue SW, 
Washington, DC 20250-9410 or email: [email protected].
    USDA is an equal opportunity provider, employer, and lender.

List of Subjects

7 CFR Part 761

    Accounting, Loan Programs--Agriculture, Rural areas.

7 CFR Part 762

    Agriculture, Banks, Banking, Credit, Loan Programs--Agriculture.

7 CFR Part 764

    Agriculture, Credit, Loan programs--Agriculture.

7 CFR Part 765

    Agriculture, Agricultural commodities, Credit, Livestock, Loan 
Programs--Agriculture.

7 CFR Part 766

    Agriculture, Agricultural commodities, Credit, Livestock, Loan 
Programs--Agriculture.

7 CFR Part 769

    Loan program--Agriculture, Land.

    For the reasons discussed above, FSA amends 7 CFR chapter VII as 
follows:

PART 761--FARM LOAN PROGRAMS; GENERAL PROGRAM ADMINISTRATION

0
1. The authority citation for part 761 continues to read as follows:

    Authority:  5 U.S.C. 301 and 7 U.S.C. 1989.

Subpart A--General Provisions

0
2. Amend Sec.  761.2:
0
a. In paragraph (a), by adding an entry for the acronym ``HPRP'' in 
alphabetical order; and
0
b. In paragraph (b):
0
i. By removing the definition of ``Downpayment loan'';
0
ii. By adding in alphabetical order a definition for ``Down payment 
loan'';
0
iii. In the definition of ``Family farm'', in paragraphs (2)(i)(A) and 
(2)(ii)(A), by removing the words ``borrower and'' and adding 
``borrower, with input and assistance allowed from'' in their place; 
and
0
iv. By adding in alphabetical order definitions for ``Heirs' 
property''; ``HPRP loan agreement'', ``HPRP loan funds''; ``HPRP 
revolving loan fund''; ``Intermediary''; ``Non-monetary default''; 
``Revolved funds''; ``Succession plan''; ``Ultimate recipient''; and 
``Undivided ownership interest''.
    The additions read as follows:


Sec.  761.2   Abbreviations and definitions.

* * * * *
    (a) * * *
    HPRP The Heirs' Property Relending Program.
* * * * *
    (b) * * *
    Down payment loan is a type of FO loan made to beginning farmers 
and socially disadvantaged farmers to finance a portion of a real 
estate purchase under part 764, subpart E of this chapter.
* * * * *
    Heirs' property means a farm that is jointly held by multiple heirs 
as tenants in common as a result of inheriting title from a relative.
* * * * *
    HPRP loan agreement means the signed agreement between FSA and the 
intermediary that specifies the terms and conditions of the HPRP loan.
    HPRP loan funds means cash proceeds of a loan obtained through 
HPRP, including the portion of an HPRP revolving loan fund directly 
provided by the HPRP loan as well as the proceeds advanced to an 
ultimate recipient. HPRP loan funds are Federal funds.
    HPRP revolving loan fund means a group of assets, obtained through 
or related to an HPRP loan and recorded by the intermediary in a 
bookkeeping account or set of accounts and accounted for, along with 
related liabilities, revenues, and expenses, as an entity or enterprise 
separate from the intermediary's other assets and financial activities.
* * * * *
    Intermediary means the entity requesting or receiving HPRP loan 
funds for establishing a revolving loan fund and relending to ultimate 
recipients.
* * * * *
    Non-monetary default means a situation where a borrower is not in 
compliance with the covenants or requirements of the loan documents, 
program requirements, or loan.
* * * * *
    Revolved funds means the cash portion of an HPRP revolving loan 
fund that is not composed of HPRP loan funds, including funds that are 
repayments of HPRP loans and including fees and interest collected on 
such loans.
* * * * *
    Succession plan means a general plan to address the continuation of 
the farm, which may include specific intra-family succession agreements 
or strategies to address business asset transfer planning to create 
opportunities for farmers and ranchers.
* * * * *
    Ultimate recipient means an entity or individual that receives a 
loan from an intermediaries' HPRP revolving loan fund.
* * * * *
    Undivided ownership interest means a common interest in the whole 
parcel of land that is owned by two or more people. Undivided ownership 
interest does not include those who own a specific piece of a parcel of 
land; rather they own a percentage interest in a parcel of land as a 
whole.
* * * * *


Sec.  761.7   [Amended]

0
3. Amend Sec.  761.7 in paragraphs (c)(1) introductory text and (c)(2) 
by removing the number ``12'' and adding the number ``18'' in its 
place.


Sec.  761.8   [Amended]

0
4. Amend Sec.  761.8 in paragraph (a)(1) introductory text by removing 
the word ``Downpayment'' and adding the words ``Down payment'' in its 
place.

Subpart B--Supervised Bank Accounts

0
5. Amend Sec.  761.51 by revising paragraph (a)(1) to read as follows:


Sec.  761.51   Establishing a supervised bank account.

    (a) * * *
    (1) Assure correct use of funds are planned and released for 
capital purchases, construction projects, site development work, debt 
refinancing, or proceeds from the sale of basic security, and 
perfection of the Agency's security interest in assets purchased or 
refinanced when electronic funds transfer or treasury check processes 
are not practicable;
* * * * *

[[Page 43391]]

Subpart C--Progression Lending

0
6. Revise the subpart C heading to read as set forth above.

0
7. Amend Sec.  761.103:
0
a. In paragraph (a)(3), by removing the words ``plan of supervision'' 
and adding the words ``progressive lending plan'' in their place;
0
b. In paragraphs (b)(8) and (c)(5), by removing the word 
``Supervisory'' and adding the words ``Progression lending'' in its 
place; and
0
c. By revising paragraph (e).
    The revision reads as follows:


Sec.  761.103   Farm assessment.

* * * * *
    (e) The Agency reviews the assessment to determine a borrower's 
progress at least annually, combining any required classification and 
graduation reviews as part of the review. For streamlined CLs, the 
borrower must provide a current balance sheet and income tax records. 
Any negative trends noted between the previous years' and the current 
years' information must be evaluated and addressed in the assessment of 
the streamlined CL borrower.
* * * * *

0
8. Amend Sec.  761.104 by revising paragraph (c)(4)(i) to read as 
follows:


Sec.  761.104   Developing the farm operating plan.

* * * * *
    (c) * * *
    (4) * * *
    (i) Use county average yields, or state average yields if county 
average yields are not available, in place of the disaster year yields 
when the county or state average yields are realistic and reasonable 
compared to the applicant's actual non-disaster year yields, as 
determined by the agency approval official; or
* * * * *

0
9. Amend Sec.  761.105 by revising paragraphs (a)(1) and (4) to read as 
follows:


Sec.  761.105   Year-end analysis.

    (a) * * *
    (1) Is being considered for a new direct loan or subordination;
* * * * *
    (4) Is receiving a limited resource interest rate on any loan, in 
which case the review will be completed at least every 2 years.
* * * * *

Subpart D--Allocation of Farm Loan Programs Funds to State Offices


Sec.  761.211   [Amended]

0
10. Amend Sec.  761.211 in paragraph (a) by removing the word 
``Downpayment'' and adding the words ``Down payment'' in its place.

Subpart F--Farm Loan Programs Debt Settlement


Sec.  761.405   [Amended]

0
11. Amend Sec.  761.405 in paragraph (a)(6) by removing the words 
``greater than $1,000'' and adding the words ``exceeding an amount 
determined by the Agency'' in their place.

PART 762--GUARANTEED FARM LOANS

0
12. The authority citation for part 762 continues to read as follows:

    Authority:  5 U.S.C. 301 and 7 U.S.C. 1989.


Sec.  762.110   [Amended]

0
13. Amend Sec.  762.110 in paragraph (d)(2) by removing ``over $1,000'' 
and adding ``exceeding an amount determined by the Agency'' in its 
place.


Sec.  762.120   [Amended]

0
14. Amend Sec.  762.120:
0
a. In paragraph (i)(2)(iii), by removing the words ``a majority 
interest must'' and adding ``at least 50 percent interest must'' in 
their place; and
0
b. In paragraph (j)(2)(iii), by removing the words ``a majority 
interest must operate the family farm and the entity members holding a 
majority interest'' and adding ``at least 50 percent interest must 
operate the family farm and the entity members holding at least 50 
percent'' in their place.


Sec.  762.121   [Amended]

0
15. Amend Sec.  762.121:
0
a. In paragraph (a)(1)(ix), by adding the words ``or non-compliance'' 
after the word ``compliance'' in the second sentence; and
0
b. In paragraph (b)(1), by removing the word ``downpayment'' and adding 
the words ``down payment'' in its place.


Sec.  762.123   [Amended]

0
16. Amend Sec.  762.123 in paragraph (a)(2)(i) by removing ``part 402'' 
and adding ``Sec.  400.651'' in its place.


Sec.  762.127   [Amended]

0
17. Amend Sec.  762.127 in paragraphs (c)(2) introductory text and 
(c)(3) by removing the number ``12'' and adding the number ``18'' in 
its place each time it appears.


Sec.  762.129   [Amended]

0
18. Amend Sec.  762.129 in paragraph (b)(1)(ii) by removing the word 
``downpayment'' and adding ``down payment'' in its place.


Sec.  762.130   [Amended]

0
19. Amend Sec.  762.130 in paragraph (d)(4)(iii)(C) by removing the 
word ``Downpayment'' and adding the words ``Down Payment'' in its 
place.


Sec.  762.145   [Amended]

0
20. Amend Sec.  762.145 in paragraph (b)(2)(iv) by removing the words 
``of $1000 or more'' and adding the words ``exceeding an amount 
determined by the Agency.'' in their place.

PART 764--DIRECT LOAN MAKING

0
21. The authority citation for part 764 continues to read as follows:

    Authority:  5 U.S.C. 301 and 7 U.S.C. 1989.

Subpart B--Loan Application Process


Sec.  764.52   [Amended]

0
22. Amend Sec.  764.52:
0
a. In paragraph (a), by removing the number ``10'' and adding ``7 
calendar'' in its place and by removing the number ``20'' and adding 
the number ``15'' in its place; and
0
b. In paragraph (b), by removing the number ``10'' and add the number 
``15'' in its place.


Sec.  764.54   [Amended]

0
23. Amend Sec.  764.54 in paragraph (b)(2)(ii) by removing the word 
``downpayment'' and adding the words ``down payment'' in its place.

Subpart C--Requirements for All Direct Program Loans


Sec.  764.101  [Amended]

0
24. Amend Sec.  764.101 in paragraph (k)(2)(ii) by removing the words 
``a majority'' and adding ``at least 50 percent'' in their place.


Sec.  764.103   [Amended]

0
25. Amend Sec.  764.103 in paragraph (e) by removing ``$5,000'' and 
adding ``$15,000'' in its place.

Subpart D--Farm Ownership Loan Program


Sec.  764.152   [Amended]

0
26. Amend Sec.  764.152 in paragraph (c)(3)(ii) by removing the words 
``a majority'' and adding ``at least 50 percent'' in their place each 
time they appear.

[[Page 43392]]

Subpart E--Downpayment Loan Program

0
27. Amend Sec.  764.201 by revising the section heading and removing 
the word ``Downpayment'' and adding the words ``Down payment'' in its 
place.
    The revision reads as follows:


Sec.  764.201  Down payment loan uses.

* * * * *


Sec.  764.203   [Amended]

0
28. Amend Sec.  764.203:
0
a. In paragraph (a)(2), by removing the word ``downpayment'' and adding 
the words ``down payment'' in its place; and
0
b. In paragraphs (b) introductory text and (c), by removing 
``Downpayment'' and adding ``Down payment'' in its place.


Sec.  764.204   [Amended]

0
29. Amend Sec.  764.204 in paragraphs (a) and (b)(1) by removing the 
word ``Downpayment'' and adding the words ``Down payment'' in its 
place.


Sec.  764.205   [Amended]

0
30. Amend Sec.  764.205 in the introductory text by removing the word 
``Downpayment'' and adding the words ``Down payment'' in its place.

Subpart G--Operating Loan Program


Sec.  764.251   [Amended]

0
31. Amend Sec.  764.251 in paragraph (a)(2) by adding the words ``or 
fixtures'' after the word ``equipment''.


Sec.  764.254   [Amended]

0
32. Amend Sec.  764.254 in paragraphs (b)(1)(i) and (ii) by removing 
the number ``18'' and adding ``24'' in its place.

Subpart I--Emergency Loan Program


Sec.  764.354   [Amended]

0
33. Amend Sec.  764.354 in paragraph (b)(3) by removing the number 
``18'' and adding ``24'' in its place.

Subpart K--Borrower Training and Training Vendor Requirements

0
34. Amend Sec.  764.453 by adding paragraph (d) to read as follows.


Sec.  764.453   Agency waiver of training requirements.

* * * * *
    (d) When considering subsequent loan actions, previous training 
requirements that have not yet been satisfied may be waived by the 
Agency should the borrower submit satisfactory evidence in accordance 
with paragraph (b) of this section.

PART 765--DIRECT LOAN SERVICING--REGULAR

0
35. The authority citation for part 765 continues to read as follows:

    Authority:  5 U.S.C. 301 and 7 U.S.C. 1989.

Subpart B--Borrowers with Limited Resource Interest Rate Loans

0
36. Amend Sec.  765.51 by revising the section heading and paragraph 
(a) to read as set forth below.


Sec.  765.51   Required review.

    (a) At least every 2 years, a borrower with limited resource 
interest rate loans is required to provide the operation's financial 
information to the Agency; for the Agency to determine if the borrower 
can afford to pay a higher interest rate on the loan. The Agency will 
review the information provided in accordance with Sec.  761.105 of 
this chapter.
* * * * *

Subpart D--Borrower Payments

0
37. Add Sec.  765.161 to read as follows:


Sec.  765.161   Borrowers entering the Armed Forces.

    (a) Protections for borrowers on active duty. The Servicemembers 
Civil Relief Act (Pub. L. 108-189) and the Ronald W. Reagan National 
Defense Authorization Act for Fiscal Year (FY) 2005 (Pub. L. 108-375) 
provide certain loan servicing protections for military borrowers. The 
Agency will apply those loan servicing protections to applicable Farm 
Loan borrowers.
    (1) The benefits and protections of the Servicemembers Civil Relief 
Act apply to borrowers on active duty at all times.
    (2) The requirements of the Ronald W. Reagan National Defense 
Authorization Act for Fiscal Year (FY) 2005 apply during a time of a 
war or national emergency as declared by the President or Congress.
    (b) Eligibility for National Guard members and military reservists. 
Borrowers who are National Guard members or military reservists will be 
eligible for the protections covered by this section, as specified in 
paragraphs (b)(1) and (2) of this section:
    (1) National Guard members must be on duty for at least 30 
consecutive calendar days.
    (2) Military reservists are eligible from the date orders are 
received to report for active duty.
    (c) Entity eligibility. National Guard members and military 
reservists on active duty and any operating entity owned solely by the 
active duty borrower may be considered for protections specified in 
paragraph (a) of this section.

Subpart F--Required Use and Operation of Agency Security

0
38. Amend Sec.  765.252 by revising paragraph (a)(4) to read as 
follows:


Sec.  765.252   Lease of security.

    (a) * * *
    (4) The lease does not hinder the future operation or success of 
the farm, or, if the borrower has ceased to operate the farm, the 
requirements specified in Sec.  765.253 are met. Leases for nonfarm 
enterprises, such as solar farms, which take significant acreage of the 
operation out of agriculture production are not authorized. Non-
productive land may be considered for this type of lease; and.
* * * * *

Subpart H--Partial Release of Real Estate Security


Sec.  765.351   [Amended]

0
39. Amend Sec.  765.351 in the second sentence of paragraph (f)(6) by 
removing the words ``and released''.


Sec.  765.353   [Amended]

0
40. Amend Sec.  765.353 in paragraph (a)(2) by removing ``$25,000'' and 
adding ``$50,000'' in its place.

PART 766--DIRECT LOAN SERVICING--SPECIAL

0
41. The authority citation for part 766 continues to read as follows:

    Authority:  5 U.S.C. 301, 7 U.S.C. 1989, and 1981d(c).

Subpart C--Loan Servicing Programs

0
42. In Sec.  766.106 amend the introductory text by adding a second 
sentence to read as follows:


Sec.  766.106   Agency notification of decision regarding a complete 
application.

    * * * Except that when a real estate appraisal is involved, the 
Agency will send the borrower notification of the Agency's decision 
within 90 calendar days after receiving a complete application.
* * * * *

0
43. Amend Sec.  766.111 by:
0
a. Revising the paragraph (a) subject heading;
0
b. Adding introductory text to paragraph (b); and
0
c. Revising paragraph (b)(1).
    The revisions and addition read as follows:


Sec.  766.111   Writedown.

    (a) Borrower eligibility. * * *
* * * * *

[[Page 43393]]

    (b) Conditions. The conditions required for approval of writedown 
are:
    (1) Rescheduling, consolidation, reamortization, deferral or some 
combination of these options on all of the borrower's loans would not 
result in a feasible plan with a 110 percent debt service margin. If a 
feasible plan is achieved with a debt service margin of 101 percent or 
more, the Agency will permit a borrower to accept a non-writedown 
servicing offer and waive the right to a writedown offer when the 
writedown offer will require additional time and appraisals to fully 
develop. If after obtaining an appraisal a feasible plan is achieved 
with and without a writedown and the borrower meets all the eligibility 
requirements, both options will be offered and the borrower may choose 
one option.
* * * * *


Sec.  766.202   [Amended]

0
44. Amend Sec.  766.202 in paragraph (a) introductory text by removing 
the number ``12'' and adding the number ``18'' in its place.

PART 769--FARM LOAN PROGRAMS RELENDING PROGRAMS

0
45. The authority citation for part 769 continues to read as follows:

    Authority:  5 U.S.C. 301, 7 U.S.C. 1989, and 25 U.S.C. 488.

0
46. Revise the heading for part 769 to read as set forth above.


Sec. Sec.  769.101 through 769.125   [Redesignated as Subpart A]

0
47. Redesignate Sec. Sec.  769.101 through 769.125 as subpart A under 
the following heading:

Subpart A--Highly Fractionated Indian Land Loan Program

0
48. Add subpart B, consisting of Sec. Sec.  769.150 through 769.168, to 
read as follows:
Subpart B--Heirs' Property Relending Program
Sec.
769.150 Purpose.
769.151 Abbreviations and definitions.
769.152 Eligibility requirements of the intermediary.
769.153 Eligibility requirements of the ultimate recipient.
769.154 Authorized loan purposes.
769.155 Loan limitations.
769.156 Rates and terms.
769.157 Intermediary's relending plan.
769.158 Intermediary's loan application.
769.159 Processing loan applications.
769.160 Letter of conditions.
769.161 Loan agreements.
769.162 Security.
769.163 Loan closing.
769.164 Post award requirements.
769.165 Loan servicing.
769.166 Transfers and assumptions.
769.167 Appeals.
769.168 Exceptions.

Subpart B--Heirs' Property Relending Program


Sec.  769.150   Purpose.

    (a) This subpart contains regulations for loans made by the Agency 
to eligible intermediaries that will make and service loans to ultimate 
recipients pursuant to requirements in this subpart. This subpart 
applies to intermediaries, ultimate recipients, and other parties 
involved in making such loans.
    (b) The purpose of HPRP is to assist heirs with undivided ownership 
interests resolve ownership and succession issues on a farm that is 
owned by multiple owners. This purpose is achieved by providing loan 
funds to eligible intermediaries who will re-lend to individuals and 
entities for the purpose of developing and implementing a succession 
plan and to resolve title issues.
    (c) Intermediaries receiving HPRP loans must comply with this 
subpart, the HPRP loan agreement, the intermediary's relending plan 
approved by the Agency, the HPRP loan documents and security 
instruments and any other conditions that the Agency may impose in 
making a loan.


Sec.  769.151   Abbreviations and definitions.

    Abbreviations and definitions used in this subpart are found in 
Sec.  761.2 of this chapter.


Sec.  769.152   Eligibility requirements of the intermediary.

    (a) Eligible entity types. Cooperatives, credit unions, and 
nonprofit organizations are eligible to participate as intermediaries.
    (b) Certification. The intermediary must be certified as a 
community development financial institution under 12 CFR 1805.201 to 
operate as a lender.
    (c) Citizenship. The applicant and the members of the intermediary 
must be a U.S. citizen or qualified alien (see 8 U.S.C. 1641). Each 
intermediary must certify to the citizenship requirement in the HPRP 
loan application.
    (d) Experience. The intermediary must have:
    (1) The requisite experience and capability in making and servicing 
agricultural and commercial loans that are similar in nature to HPRP. 
If consultants will be used in the making and servicing of HPRP loans, 
the Agency will assess the intermediary's experience in choosing and 
supervising consultants based on information intermediaries include in 
their application describing the particular lending functions they 
typically rely on agents to fulfill and also describe their policies 
and procedures for monitoring these agents;
    (2) The legal authority necessary to carry out the proposed loan 
purposes and to obtain, provide security for, and repay the proposed 
loan; and
    (3) Demonstrated ability and willingness to repay the loan based on 
the intermediary's financial condition, managerial capabilities, and 
other resources.


Sec.  769.153   Eligibility requirements of the ultimate recipient.

    (a) The eligibility requirements for the ultimate recipient are:
    (1) Ultimate recipients must be individuals or legal entities, with 
authority to incur the debt and to resolve ownership and succession of 
a farm owned by multiple owners;
    (2) Individual ultimate recipients or members of entity ultimate 
recipients must be a family member or heir-at-law related by blood or 
marriage to the previous owner of the real property; and
    (3) The ultimate recipient must agree to complete a succession 
plan.
    (b) The intermediary will determine the eligibility of the 
applicant to become the ultimate recipient in accordance with the rules 
provided in this subpart and in accordance with the intermediary's 
relending plan as approved by the Agency in the HPRP loan agreement.


Sec.  769.154   Authorized loan purposes.

    (a) Loans to the intermediary. HPRP loan funds must be used by the 
intermediary to provide direct loans to eligible ultimate recipients 
according to the rules provided in this subpart and pursuant to the 
HPRP loan agreement approved by the Agency.
    (b) Loans to the ultimate recipients. HPRP loan funds:
    (1) Must be used to assist heirs with undivided ownership interests 
to resolve ownership and succession of a farm owned by multiple owners;
    (2) Must be sufficient to cover costs and fees associated with 
development and implementation of the succession plan, including 
closing costs (such as costs for preparing documents, appraisals, 
surveys, and title reports) and other associated legal services (such 
as fees incurred for mediation); and
    (3) May be used to purchase and consolidate fractional interests 
held by other heirs in jointly-owned property, and to purchase rights-
of-way, water rights, easements, and other

[[Page 43394]]

appurtenances that would normally pass with the property and are 
necessary for the proposed operation of the farm.


Sec.  769.155   Loan limitations.

    (a) For each application period:
    (1) Loans to intermediaries will not exceed $5,000,000 to any 
intermediary;
    (2) Loans to ultimate recipients will not exceed the loan limit for 
a Direct Farm Ownership loan as specified in Sec.  761.8(a)(1)(i) of 
this chapter to any ultimate recipient.
    (b) Loans to the ultimate recipient may not be used:
    (1) For any land improvement, development purpose, acquisition or 
repair of buildings, acquisition of personal property, payment of 
operating costs, payment of finders' fees, or similar costs;
    (2) For any purpose that will contribute to excessive erosion of 
highly erodible land or for the conversion of wetlands to produce an 
agricultural commodity as specified in 7 CFR part 12; or
    (3) To resolve heirs' property issues on property that will not be 
used, or has traditionally not been used, for production agricultural 
purposes.
    (c) The HPRP loan amount may not exceed the current market value of 
the land determined by an appraisal that meets the requirements 
specified in Sec.  761.7(b)(1) of this chapter; and
    (d) Intermediaries who receive HPRP funding are not permitted to 
charge the ultimate recipients for mediation services provided through 
grants received under the Agency's State Agriculture Mediation Program 
(part 785 of this chapter).


Sec.  769.156   Rates and terms.

    (a) For loans to intermediaries:
    (1) The rate of interest for an HPRP loan will bear a fixed rate 
over the term of the loan of 1 percent or less as determined by the 
Administrator;
    (2) The repayment term for an HPRP loan will not exceed 30 years; 
and
    (3) Annual payments will be established. Interest will be due 
annually; however, principal payments may be deferred by the Agency.
    (b) Loans to the ultimate recipient from the HPRP revolving loan 
fund are required to have rates and terms clearly and publicly 
disclosed to qualified ultimate recipients.
    (1) The interest rate for loans to ultimate recipients will be set 
by the intermediary within the limits established by the intermediary's 
relending plan approved by the Agency. The rate should normally be the 
lowest rate sufficient to cover the loan's proportional share of the 
HPRP revolving loan fund's debt service costs, reserve for bad debts, 
and administrative costs.
    (2) Loans made by an intermediary to an ultimate recipient will be 
scheduled for repayment over a term negotiated by the intermediary and 
ultimate recipient; but in no case will the loan term exceed 30 years, 
unless otherwise specified by the Agency.


Sec.  769.157   Intermediary's relending plan.

    (a) The intermediary must submit a proposed relending plan which, 
once approved by the Agency, will be incorporated by reference as an 
attachment to the HPRP loan agreement. The relending plan will explain 
in sufficient detail the mechanics of how the funds will be distributed 
from the intermediary to the ultimate recipient.
    (b) The intermediary's relending plan must include copies of the 
intermediary's proposed application forms, loan documents and security 
instruments, and should include information regarding:
    (1) The service area;
    (2) The proposed fees and other charges the intermediary will 
assess the ultimate recipients;
    (3) Eligibility criteria for the ultimate recipient;
    (4) Authorized loan purposes;
    (5) Loan limitations;
    (6) Loan underwriting methods and criteria;
    (7) Loan rates and terms;
    (8) Security requirements;
    (9) The method of disbursement of the funds to the ultimate 
recipient;
    (10) The process for addressing environmental issues on property to 
be purchased;
    (11) The proposed process for reviewing loan requests from ultimate 
recipients and making eligibility determinations;
    (12) A description of the established internal credit review 
process;
    (13) The monitoring and servicing of loans distributed to the 
ultimate recipients;
    (14) The amount that will be set aside to maintain a reserve for 
bad debts; and
    (15) A description of the requirements for maintaining adequate 
hazard insurance, life insurance (for principals and key employees of 
the ultimate recipient), workmen's compensation insurance on ultimate 
recipients, flood insurance, and fidelity bond coverage.


Sec.  769.158   Intermediary's loan application.

    (a) The intermediary's loan application will consist of:
    (1) An application form provided by the Agency;
    (2) A relending plan addressing the items in Sec.  769.157;
    (3) A copy of the intermediary's certification as a community 
development financial institution;
    (4) A signed form, to be provided by the Agency, assuring the 
intermediary's compliance and continued compliance with Title IX of the 
Education Amendments of 1972 (20 U.S.C. 1681-1688) and Title VI of the 
Civil Rights Act of 1964 (42 U.S.C. 2000d-1- 2000d-7);
    (5) Other evidence the Agency requires to determine that the 
intermediary satisfies the eligibility requirements in Sec.  769.152, 
and that the intermediary's proposed relending plan is feasible and 
meets the objectives of HPRP;
    (6) Documentation of the intermediary's ability to administer the 
HPRP loan funds in accordance with this subpart; and
    (7) The name(s) of attorneys or any third parties involved with the 
application process.
    (b) Prior to loan approval and advancing funds, the intermediary 
must certify that:
    (1) The intermediary and its officers, or agents are not delinquent 
on any Federal debt, including, but not limited to, federal income tax 
obligations, federal loan or loan guarantee, or obligation from another 
Federal agency. If delinquent, the intermediary must provide in writing 
the reasons for the delinquency, and the Agency will take this into 
consideration in deciding whether to approve the loan or advance of 
funds;
    (2) The intermediary and its officers have not been convicted of a 
felony criminal violation under Federal law in the 24 months preceding 
the date of the loan application;
    (3) The intermediary is in compliance with the restrictions and 
requirements in 31 U.S.C. 1352, limitation on use of appropriated funds 
to influence certain Federal contracting and financial transactions;
    (4) The intermediary has been informed of the options by the 
Federal Government to collect delinquent debt; and
    (5) The intermediary, its officers, or agents are not debarred or 
suspended from participation in Government contracts or programs.
    (c) An intermediary that has received one or more HPRP loans may 
apply for and be considered for subsequent HPRP loans provided:
    (1) The intermediary is relending all collections from loans made 
from its revolving fund in excess of what is needed for the required 
debt service

[[Page 43395]]

reserve and approved administrative costs;
    (2) The outstanding loans of the intermediary's HPRP revolving loan 
fund are performing; and
    (3) The intermediary is following all regulatory requirements and 
is complying with the terms and conditions of its HPRP loan 
agreement(s) and the intermediary's relending plan(s) approved by the 
Agency.
    (d) The Agency may require the intermediary to provide information 
relating to applications from ultimate recipients the intermediary has 
in process.


Sec.  769.159   Processing loan applications.

    (a) Application dates. The opening and closing dates for the HPRP 
applications submission will be announced in Federal Register.
    (b) Intermediary loan application review. After the closing date, 
the Agency will review applications from intermediaries for compliance 
with the provisions of this subpart.
    (c) Loan approval. Loan approval is subject to the availability of 
funds. The loan will be considered approved for the intermediary on the 
date the Agency signs the obligation of funds confirmation.
    (d) Preferences for loan funding. The Agency will fund eligible 
applications from intermediaries:
    (1) First, to those with not less than 10 years' experience serving 
socially disadvantaged farmers and ranchers that are located in states 
that have adopted a statute consisting of an enactment or adoption of 
the Uniform Partition of Heirs Property Act, as approved and 
recommended for enactment in all States by the National Conference of 
Commissioners on Uniform State Laws in 2010, that relend to owners of 
heirs property (as defined by the Uniform Partition of Heirs Property 
Act);
    (2) Second, to those that have applications from ultimate 
recipients already in process, or that have a history of successfully 
relending previous HPRP funds; and
    (3) Multiple applications in the same priority tier, will be 
processed based by date of application received; and
    (4) Any remaining applications, after priority tiers 1 and 2 have 
be funded, will be funded in order of the date the application was 
received.
    (e) Current information required. Information supplied by the 
intermediary in the loan application must be updated by the 
intermediary if the information is more than 90 days old at the time of 
loan closing.


Sec.  769.160   Letter of conditions.

    (a) If the Agency approves a loan application, the Agency will 
provide the intermediary with a letter of conditions listing all 
requirements for the loan.
    (b) Immediately after reviewing the conditions and requirements in 
the letter of conditions, the intermediary should complete, sign, and 
return the form provided by the Agency indicating the intermediary's 
intent to meet the conditions.
    (1) If certain conditions cannot be met, the intermediary may 
propose alternative conditions to the Agency.
    (2) The Agency loan approval official must concur with any changes 
made to the initially issued or proposed letter of conditions prior to 
loan approval.
    (c) The loan request will be considered withdrawn if the 
intermediary does not respond within 15 calendar days from the date the 
letter of conditions was sent.


Sec.  769.161   Loan agreements.

    (a) The HPRP loan agreement will specify the terms of each loan, 
such as:
    (1) The amount of the loan;
    (2) The interest rate;
    (3) The term and repayment schedule;
    (4) Any provisions for late charges;
    (5) The disbursement procedure;
    (6) Provisions regarding default; and
    (7) Fidelity insurance.
    (b) As a condition of receiving HPRP loan funds, the intermediary 
will agree:
    (1) To obtain written approval from the Agency prior to making any 
changes in the intermediary's articles of incorporation, charter, or 
by-laws;
    (2) To maintain a separate ledger and segregated account for the 
HPRP revolving loan fund;
    (3) To comply with the Agency's annual reporting requirements in 
Sec.  769.164(g);
    (4) To obtain prior written approval from the Agency regarding all 
forms to be used for relending purposes, as well as the intermediary's 
policy with regard to the amount and security to be required;
    (5) To obtain written approval from the Agency prior to making any 
significant changes in the proposed forms, security policy, or the 
intermediary's relending plan;
    (6) To maintain the collateral pledged as security for the HPRP 
loan; and
    (7) To request demographics data from ultimate recipients on race, 
ethnicity, and gender. The response to the data request will be 
voluntary. The intermediary will maintain the information when 
voluntarily submitted by the ultimate recipient. The intermediary 
agrees to make this information available when requested by FSA.


Sec.  769.162   Security.

    (a) Loans to intermediaries. Security pledged to the Agency by 
intermediaries must be sufficient to reasonably assure repayment of the 
loan, while taking into consideration the intermediary's financial 
condition, the intermediary's relending plan, and the intermediary's 
management ability. The Agency will require adequate security, as 
determined by the Agency, to fully secure the loan:
    (1) Primary security for HPRP loan will be in the form of a first 
lien upon the intermediary's revolving loan fund and such accounts must 
be fully covered by Federal deposit insurance or fully collateralized 
with other securities in accordance with normal banking practices and 
all applicable State laws. The form of the control agreement with the 
depository bank that will be used to perfect the Agency's security 
interest in the depository accounts used by the intermediary to 
maintain HPRP funds must be approved by the Agency. The control 
agreement will not require the Agency's signature for withdrawals. 
Among other things, the intermediary must use a depository bank that 
agrees to waive its offset and recoupment rights against the depository 
account and subordinate any liens it may have against the HPRP 
depository account in favor of the Agency;
    (2) Additional security as needed, which includes, but is not 
limited to:
    (i) Assignments of assessments, taxes, levies, or other sources of 
revenue as authorized by law;
    (ii) Financial assets of the intermediary and its members; and
    (ii) Capital assets or other property of the intermediary and its 
members.
    (b) Loans to the ultimate recipient. The intermediary is 
responsible for obtaining adequate security for all loans made to 
ultimate recipients from the HPRP revolving loan funds as specified in 
the HPRP loan agreement and intermediary's relending plan. The Agency 
will only require concurrence with the intermediary's proposed security 
for a loan to an ultimate recipient from the HPRP revolving loan fund 
if the proposed security will also serve as security for an unrelated 
Agency loan.


Sec.  769.163   Loan closing.

    (a) HPRP loan documents and security instruments. At loan closing, 
the intermediary will execute the HPRP loan agreement or supplemental 
loan agreement, HPRP promissory note, the HPRP security agreement, the 
control agreement, and any other security instruments required by the 
Agency.

[[Page 43396]]

    (b) Intermediary certification. At loan closing, the intermediary 
must certify that:
    (1) No changes have been made in the intermediary's relending plan 
except those approved in the interim by the Agency;
    (2) All requirements in the letter of conditions have been met; and
    (3) There has been no material change in the intermediary or its 
financial condition since the issuance of the letter of conditions. If 
there have been changes, the intermediary must explain the changes to 
the Agency. The Agency will review the changes and respond in writing 
prior to loan closing.


Sec.  769.164   Post award requirements.

    (a) Applicability. Whenever this subpart imposes a requirement on 
loan funds from the HPRP revolving loan fund, the requirement will 
apply to all loans made by an intermediary to an ultimate recipient 
from the intermediary's HPRP revolving loan fund for as long as any 
portion of the intermediary's HPRP loan remains unpaid.
    (b) Applicability for HPRP loan funds. Whenever this subpart 
imposes a requirement on loans made by intermediaries from HPRP loan 
funds, without specific reference to the HPRP revolving loan fund, such 
requirement only applies to loans made by an intermediary using HPRP 
loan funds, and will not apply to loans made from revolved funds.
    (c) File maintenance. In addition to information normally 
maintained by lenders in each loan file associated with a relending 
loan to an ultimate recipient, the intermediary must include a 
certification and supporting documentation in its file demonstrating 
that:
    (1) The ultimate recipient is eligible for the loan;
    (2) The loan is for eligible purposes; and
    (3) The loan complies with all applicable laws, regulations, and 
the intermediary's HPRP loan agreement.
    (d) Maintenance of HPRP revolving loan fund. For as long as any 
part of an HPRP loan remains unpaid, the intermediary must maintain the 
HPRP revolving loan fund in accordance with the requirements in 
paragraphs (d)(1) through (11) of this section:
    (1) All HPRP loan funds received by an intermediary must be 
deposited into the HPRP revolving loan fund. The intermediary may 
transfer additional assets into the HPRP revolving loan fund;
    (2) All cash of the HPRP revolving loan fund must be deposited in a 
separate bank account or accounts;
    (3) The HPRP revolving loan fund must be segregated from other 
financial assets of the intermediary, and no other funds of the 
intermediary will be commingled with the HPRP revolving loan fund;
    (4) All moneys deposited in the HPRP revolving loan fund account or 
accounts will be money from the HPRP revolving loan fund;
    (5) Loans to ultimate recipients are advanced from the HPRP 
revolving loan fund;
    (6) The receivables created by making loans to ultimate recipients, 
the intermediary's security interest in collateral pledged by ultimate 
recipients, collections on the receivables, interest, fees, and any 
other income or assets derived from the operation of the HPRP revolving 
loan fund are a part of the HPRP revolving loan fund;
    (7) The portion of the HPRP revolving loan fund consisting of HPRP 
loan funds may only be used for making loans in accordance with Sec.  
769.154. The portion of the HPRP revolving loan fund that consists of 
revolved funds may be used for debt service reserve, approved 
administrative costs, or for making additional loans;
    (8) A reasonable amount of revolved funds must be maintained as a 
reserve for bad debts. The total amount should not exceed maximum 
expected losses, considering the credit quality of the intermediary's 
portfolio of loans. The amount of reserved funds proposed by the 
intermediary requires written concurrence from the Agency. Unless the 
intermediary provides loss and delinquency records that, in the opinion 
of the Agency, justifies different amounts, a reserve for bad debts of 
6 percent of outstanding loans must be accumulated over 5 years and 
then maintained; and
    (9) Any funds in the HPRP revolving loan fund from any source that 
is not needed for debt service reserve, approved administrative costs, 
or reasonable reserves must be available for additional loans to 
ultimate recipients.
    (i) Funds may not be used for any investments in securities or 
certificates of deposit of over 30-day duration without the Agency's 
concurrence.
    (ii) The intermediary must make one or more loans to ultimate 
recipients within 6 months of any disbursement it receives from the 
Agency. If funds have been unused to make loans to ultimate recipients 
for 6 months or more, those funds will be returned to the agency unless 
the Agency provides a written exception based on evidence satisfactory 
to the Agency that every effort is being made by the intermediary to 
utilize the HPRP funding in conformance with HPRP objectives;
    (10) All reserves and other cash in the HPRP revolving loan fund 
that are not immediately needed for loans to ultimate recipients or 
other authorized uses must be deposited in accounts in banks or other 
financial institutions. Such accounts must be fully covered by Federal 
deposit insurance or fully collateralized with other securities in 
accordance with normal banking practices and all applicable State laws. 
Any interest earned on the account remains a part of the HPRP revolving 
loan fund; and
    (11) If an intermediary receives more than one HPRP loan, it does 
not need to establish and maintain a separate HPRP revolving loan fund 
for each loan; it may combine them and maintain only one HPRP revolving 
loan fund.
    (e) Budgets and administrative costs. The intermediary must submit 
an annual budget of proposed administrative costs for Agency approval. 
The annual budget should itemize cash income and cash out-flow. 
Projected cash income should consist of, but is not limited to, 
collection of principal repayment, interest repayment, interest 
earnings on deposits, fees, and other income. Projected cash out-flow 
should consist of, but is not limited to, principal and interest 
payments, reserve for bad debt, and an itemization of administrative 
costs to operate the HPRP revolving loan fund.
    (1) Proceeds received from the collection of principal repayment 
cannot be used for administrative expenses.
    (2) The amount removed from the HPRP revolving loan fund for 
administrative costs in any year must be reasonable, must not exceed 
the actual cost of operating the HPRP revolving loan fund, including 
loan servicing and providing technical assistance, and must not exceed 
the amount approved by the Agency in the intermediary's annual budget.
    (f) Loan monitoring reviews. The Agency may conduct loan monitoring 
reviews, including annual and periodic reviews, and performance 
monitoring.
    (1) At least annually, the intermediary must provide the Agency 
documents for reviewing the financial status of the intermediary, 
assessing the progress of using loan funds, and identifying any 
potential problems or concerns. Non-regulated intermediaries must 
furnish

[[Page 43397]]

audited financial statements at least annually.
    (2) The intermediary must allow the Agency or its representative to 
review the operations and financial condition of the intermediary upon 
the Agency's request. The intermediary and its agents must provide 
access to all pertinent information to allow the Agency, or any party 
authorized by the Agency, to conduct such reviews. The intermediary 
must submit financial or other information within 14 calendar days upon 
receipt of the Agency's request, unless the data requested is not 
available within that time frame. Failure to supply the requested 
information to the satisfaction of the Agency will constitute non-
monetary default. The Agency may conduct reviews, including on-site 
reviews, of the intermediary's operations and the operations of any 
agent of the intermediary, for the purpose of verifying compliance with 
Agency regulations and guidelines. These reviews may include, but are 
not limited to, audits of case files; interviews with owners, managers, 
and staff; audits of collateral; and inspections of the intermediary's 
and its agents underwriting, servicing, and liquidation guidelines.
    (g) Annual monitoring reports. Each intermediary will be monitored 
by the Agency through annual monitoring reports submitted by the 
intermediary. Annual monitoring reports must include a description of 
the use of loan funds, information regarding the acreage, the number of 
heirs both before and after loan was made, audit findings, disbursement 
transactions, and any other information required by the Agency, as 
necessary.
    (h) Unused loan funds. If any part of the HPRP loan has not been 
used in accordance with the intermediary's relending plan within 3 
years from the date of the HPRP loan agreement, the Agency may cancel 
the approval of any funds not delivered to the intermediary. The Agency 
may also direct the intermediary to return any funds delivered to the 
intermediary that have not been used by that intermediary in accordance 
with the intermediary's relending plan. The Agency may, at its sole 
discretion, allow the intermediary additional time to use the HPRP loan 
funds.


Sec.  769.165   Loan servicing.

    (a) Payments. The intermediary will make payments to the Agency as 
specified in the HPRP loan documents. All payments will be applied to 
interest first, any additional amount will be applied to principal.
    (b) Restructuring. The Agency may restructure the intermediary's 
loan debt, if:
    (1) The loan objectives cannot be met unless the HPRP loan is 
restructured;
    (2) The Agency's interest will be protected; and
    (3) The restructuring will be within the Agency's budget authority.
    (c) Default. The Agency will work with the intermediary to correct 
any default, subject to the requirements of paragraph (b) of this 
section. In the event of monetary or non-monetary default, the Agency 
will take all appropriate actions to protect its interest, including, 
but not limited to, declaring the debt fully due and payable and may 
proceed to enforce its rights under the HPRP loan agreement, and any 
other loan instruments relating to the loan under applicable law and 
regulations, and commencement of legal action to protect the Agency's 
interest. Violation of any agreement with the Agency or failure to 
comply with reporting or other HPRP requirements will be considered 
non-monetary default.


Sec.  769.166   Transfers and assumptions.

    (a) All transfers and assumptions must be approved in advance by 
the Agency. The assuming entity must meet all eligibility criteria for 
HPRP.
    (b) Available transfer and assumption options to eligible 
intermediaries include:
    (1) The total indebtedness may be transferred to another eligible 
intermediary on the same rates and terms; or
    (2) The total indebtedness may be transferred to another eligible 
intermediary on different terms not to exceed the term for which an 
initial loan can be made.
    (c) The transferor must prepare the transfer document for the 
Agency's review prior to the transfer and assumption.
    (d) The transferee must provide the Agency with information 
required in the application as specified in Sec.  769.158.
    (e) The Agency's approved form of the assumption agreement will 
formally authorize the transfer and assumption and will contain the 
Agency case number of the transferor and transferee.
    (f) When the transferee makes a cash down-payment in connection 
with the transfer and assumption, any proceeds received by the 
transferor will be credited on the transferor's loan debt in order of 
maturity date.


Sec.  769.167   Appeals.

    Any appealable adverse decision made by the Agency may be appealed 
upon written request of the intermediary as specified in 7 CFR part 11.


Sec.  769.168   Exceptions.

    The Agency may grant an exception to any of the requirements of 
this subpart if the proposed change is in the best financial interest 
of the Government and not inconsistent with the authorizing law or any 
other applicable law.

Zach Ducheneaux,
Administrator, Farm Service Agency.
[FR Doc. 2021-16459 Filed 8-5-21; 8:45 am]
BILLING CODE 3410-05-P